Question 4

Erica Corp., who reports under ASPE, leases machinery on January 1, 2020, and records this as a capital lease. Seven annual lease payments of $ 140,000 are required the end of each year, starting December 31, 2020. The present value of the lease payments at 10% is $ 681,600. Title passes to Erica at the end of the lease.

Erica uses the effective interest method of amortization for the lease. The company uses straight-line depreciation over the equipments expected useful life of eight years, with no residual value.

Instructions (Round values to the nearest dollar.)

a) Prepare a lease amortization table for 2020 and 2021.

b) Prepare the general journal entries relating to this lease for 2020.